The Ultimate Guide to Canadian Business Credit Scores

Credit scores, especially ones related to your business, can be quite confusing. There are all sorts of different measurements and risks involved and not enough reliable information out there to guide you. We have created this guide to help you understand, improve and take advantage of your good credit score. 

Credit is an important part of your business and personal financial status. Having a great credit score will help you become more credible in the eyes of lenders. That’s why it’s quite important to know what a credit score is, what are the best ways to using credit, and how to grow and maintain a healthy score. In this guide, we will answer all of the above questions and set you on the path to financial success. 

What is a credit score?

In simple terms, a credit score is a number given to those who use credit. There are several different score ranges (consumer credit score is usually between 300 and 900) and are determined based on information on your credit report. Lenders use the number and information to determine your ability to repay a business loan or make on-time payments on credit cards. They usually look at the following when measuring your creditworthiness:

  • What you currently owe to other lenders and suppliers
  • How much credit you have used up (credit utilization)
  • If you have made your payments on time
  • How old your company is and what industry it’s in

You might now be wondering: what do the score numbers mean? To answer this question, you should first know about the two major Canadian credit bureaus. Equifax and TransUnion are credit reporting agencies that collect information on all consumers. Then they share this information with financial institutions (lenders, in our case). 

Do you know your credit score? If you don’t, you can now get your free credit score with just one click and through a few simple steps. 

What is a business credit report?

A credit report is a complete overview of your financial history, which includes your credit score, and is one of the major statements that lenders can use to determine whether or not you can receive a business loan. Besides your credit score, other key information within the report is your address, SIN, your payment history for other creditors, any record of bankruptcies, and other types of judgments that might affect your creditworthiness. 

Business credit reports are more complex than personal credit reports. Here are the subsections:

Business information – Your business name, address, and phone number. It also displays additional business information such as the number of employees and sales volumes in another section. 

Score summary –  A brief summary of your business’ score. Below it, there is a section that displays the number of accounts, credit limits, collections, legal items, and others. 

Score details – Detailed description of factors taken into account to calculate your credit score

Industry summary – This section provides a better understanding of your business activities within your specific industry

Business details – Detailed information about your business’ specific activity such as accounts in collections, legal information, any inquiries, banking and returned cheques among others. 

Lending Loop has partnered up with Equifax to help you monitor and build your credit score. You can now sign up with Loop and get your free credit report and score right away. 

How is a business credit score calculated?

Your credit score is calculated by taking many factors from your business credit report into consideration. These include your payment history, delinquencies, length/history of accounts, balance-to-limit ratio, and the different types of business credits that you currently have and use regularly. 

What business credit score range is used in Canada?

Canada’s business credit score typically ranges between 0 to 100, but this varies between credit bureaus. Lenders usually don’t approve loan applications with a low credit score. But if you do end up getting approved with a low score, you will most likely receive a high-interest rate. 

On the other hand, if your credit score is high, you are most likely to be approved for a loan faster and easier and will receive a lower interest rate. 

Here is the score breakdown:

Business Delinquency Score – It allows you to determine the potential for delinquency within 12 months. The return of risk classification is 1 – 5. 

Payment Index – It measures your business’ payment habits and is calculated on the total amount owing within 90 days of the day the report was requested. The range is from 0 to 99. The closer your business score to 0, the better. It indicates that all reporting creditors are paid within the specified time. 

Business Failure Risk Score – It’s the less detailed one out of all, but still allows you to determine the potential risk for your business in the next 12 months. 

How often does credit score get updated?

Any time your credit report is updated, your credit score gets recalculated as well. Credit reports change a few times a month or based on how often your lenders update their accounts. If you see your business credit score going up or down a lot, it’s because of a few reasons: new account added, payments in process, past delinquency getting removed from the report. When you go through your credit history and clean up any unknown accounts and information, your credit score will begin to improve. If you sign up with Loop to receive your free credit score, we will send you weekly and monthly updates with tips on how to improve and maintain a good score!

How to see information on the credit report?

If you want to see what information is on your credit report, you can request it from one of the two Canadian credit bureaus — Equifax or TransUnion. You can either receive it online or in the mail. 

The free credit report version that you get from these bureaus doesn’t include your credit score. It’s only a list of information. If you want your score, you would have to pay a fee. For more information, check out the Equifax Commercial Services page. 

How long does the info stay?

This is based on where in Canada you live in. But generally speaking, this information can stay on your profile for 6 – 7 years. 

Here is a quick breakdown:

Bankruptcy – stays on your profile for a maximum of 7 years

Negative credit transactions – can stay for up to 6 years

Debt collection – can stay for up to 6 years

Legal judgments – can stay for up to 6 years

What factors influence the credit score?

Payment history (35%)

This is the most important factor that affects your credit score. Lenders want to see how likely you are to repay your loan by looking at your other loans to see if you repaid them on time (or at all!) The payment history includes all of your loans and consumer debts. It shows if you have paid off your debt entirely, deferred any, or whether payments have been late or are in collections. Any type of bankruptcy against you is also in this category. Keep in mind that more recent payment history has a bigger impact on your credit score and more distant ones has a lesser impact. So, you should continuously make payments early or on time to keep your credit score high. 

Credit Utilization (30%)

Credit card utilization is the ratio of credit used to credit extended – it is simply calculated by dividing your credit card balance by your credit card limit, and multiplying it by 100. You might be curious as to what is a good score? the answers vary. Some say under 35% is ideal, but most advise 30%. 

Length of credit history (15%)

Most lenders like to see that you have had a credit history and used credit consistently. If you have a short credit history or have not regularly used the available credit, you are seen as a risk of defaulting on their balance. That’s why it’s a good idea to continuously use your credit and build a strong credit history. This will increase your chances for loan approval. 

Soft and hard credit checks (10%)

A soft credit check provides organizations with basic information including your credit score. This is for non-lending purposes and does not negatively affect your credit score. A hard check provides organizations a detailed credit history of you and your business. In other words, all the information on your credit report. It also does negatively affect your credit score. The most common hard credit check applications are for auto loans, credit cards, bank loans, and mortgages.

Credit diversity (10%)

Lenders usually look at the types and amount of credit products you have in your credit history. If you have a variety of credit types with payments made on time, lenders will know that you’re responsible with all types of credit. This means they are more likely to approve you for a business loan. 

How to increase credit score?

As mentioned earlier in this guide, negative information stays on your credit report for 6 to 7 years. When you review your report and come across any negative factors in your history, you need to counter them with positives to repair your score.

Here are some key steps:

Pay your bills on time – pay your bills each month by the due date (earlier is great, too!) Late payments can bring down your credit score. The best way to make sure your bills are paid on time is to set up automatic payments. With online banking, pay a few days in advance.

Dispute errors on your credit report –  You should regularly be monitoring your credit report and score. Get your free credit report and check to see if there are any open credit lines that shouldn’t be there (this indicates fraud). Also, check for any negative information that is older than seven years and has never been removed. Then work to pay off that amount so that the collections agency can remove it from the report. For misinformation, follow these steps to file a dispute to one of the Canadian credit bureaus. 

No credit inquiries unless necessary – It’s a good idea to first and foremost understand the difference between soft and hard credit checks. A soft credit check is when a landlord or employers look at your score. This does not affect your credit score. A hard credit check is when you want to increase your credit limit or apply for a loan, financial institutions will then look at the score. This will affect your credit score. So try and avoid any hard checks unless it is absolutely necessary.

Reduce credit utilization – Pay off all of your credit card balances and other debts. Use only a portion of your available credit. When you reduce your credit utilization to below 30%, you should try and maintain it. That’s if there aren’t any other strikes, such as late payments. 

Final thoughts

We understand that your business means a lot to you. That’s why it’s important for you to know your business credit scores and reports. They are beneficial to your business growth and are useful tools when applying for a business loan. Potential creditors, partners, and even investors will look into your business credit report and score and evaluate your business’ financial health and creditworthiness.